Guru Tuesday

Mark Mobius has a write up in the FT today giving a broad state of the asset class opinion. Not surprisingly his outlook for emerging markets is positive including for some countries that face some serious obstacles including Ukraine and Romania. He notes that countries with surpluses, he specifically mentions China's $1.9 trillion war chest, look to weather the crisis better and come out sooner.

This is consistent with a point I have been trying to make which is that even if the US is in some sort of deflationary secular funk that takes longer to heal than most people expect other countries feeling our pain are doing so only cyclically--especially some emerging market countries. 

The other guru today was Marc Faber on CNBC noting the watershed that 2007 was. To hear Faber tell it we should be prepared for the possibility that nothing will work for a while to come. He made a comment that in dollar terms there are many markets that are down after 20 years. I can't vouch for that one.

Both gurus  bring different messages to the table today. Should you listen to either one? Neither One? Both?

These types of messages lead me to a couple of things. One is that regardless of recession/expansion or inflation/deflation there are certain areas (themes and or countries) where money is going to spent. The variable is the time table on which the money is spent (subject to funding being available). Money being spent does not guarantee a positive investment result but it serves to put the odds in your favor. Likewise investing in a surplus country, surplus implying health, provides no assurances just better odds.

The other thought I have is more theoretical about what asset allocation may need to look like in order to make it through some sort of extended malaise.

I have never been a breadlines guy but it is possible that stock markets go another ten years without offering a normal return. In that sort of a world, culling together an inflation (assumes deflation is only a short term problem) plus 2% return could be difficult but crucial. Broad based index funds would be a bad place to put money unless it was part of some sort of absolute return strategy.

Asset allocation could need to be turned completely upside down. We may need to hold a lot of cash, use a lot of absolute return (I am having good luck with Rydex Managed Futures RYMFX), use foreign TIPS (there are countries that will not have deflation problems), use foreign t-bils and notes (hat tip to Nassim Taleb) and seek out some particularly narrow equity themes which could be difficult to find

I suspect finding commentary along these lines and how to wade in to this type of approach will be few and far between. I've done some of this over the years on my blog and will try to explore this more here.